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The LIBOR scandal is heating up and could be very costly for banks around the world. Could this be the "tobacco moment" for the banking industry?

The quip refers to an Economist article earlier in the month covering the Barclays LIBOR scandal. The article quotes the head of a multinational bank saying, "This is the banking industry's tobacco moment ... It's that big." As the article explains, the comparison refers to the hundreds of billions of dollars that tobacco companies were fined in the late 1990s.

Though it will be difficult to determine who was actually hurt by the LIBOR-rigging actions and what the extent of the damage is, there is certainly potential for this to hit big numbers. Even before the Barclays mess came to light, Charles Schwab and the city of Baltimore had already filed LIBOR-related lawsuits. Since then, BlackRock, Fidelity, and Vanguard have all made noise about potential legal action.

And while Barclays has grabbed the lion's share of the headlines so far, it will likely be joined by plenty of other banks getting caught with their hands in the cookie jar. Lloyds Banking Group(NYSE: LYG), for instance, has also received subpoenas and Reuters noted one analyst estimated that LIBOR-related claims could cost the bank more than $2 billion. Lloyds sits on the LIBOR panel for every currency from the U.S. dollar to the Swedish krona and the Japanese yen.

Some have said that Citigroup's (NYSE: C) liability could dwarf that of Barclays. And there are plenty of other major banks involved in the various LIBOR panels including Bank of America(NYSE: BAC), JPMorgan(NYSE: JPM), HSBC, Deutsche Bank, and Royal Bank of Canada(NYSE: RBC).

Still, it's a dangerous comparisonWhile magnitude of the LIBOR-related litigation could indeed make this look like banks' "tobacco moment," the comparison can easily be taken too far. Take, for example, what author and MIT professor Simon Johnson had to say in The New York Times: "This could even become a "tobacco moment," in which an industry is forced to acknowledge its practices have been harmful – and enters into a long-term agreement that changes those practices and provides continuing financial compensation."

The sentiment here extends beyond comparing the potential magnitude of the resulting settlements. It explicitly suggests that, like pre-settlement tobacco-company practices, the practices of banks have been harmful to customers. To be sure, this isn't a tough case to make, especially when it comes to LIBOR rigging or predatory lending.

But there are no doubt plenty of readers who will take any mention of the banks "tobacco moment" as a further indictment of banking as an inherently evil industry filled with shysters that are intent on fleecing anyone they can. But banking isn't tobacco. Tobacco is an inherently dangerous product that kills roughly six million people around the world per year. Count to six, and by the time you're done, somebody somewhere has probably died due to tobacco. Based on the numbers I've seen, banking is yet to be considered a leading cause of death.

Banking, at its core, is connecting those with extra money with those that need money. That's a good thing. Businesses can get capital they need to start up or expand and individuals can save for the future. Indeed, even a good thing can do harm if handled improperly -- try eating carrots dipped in arsenic. But unlike tobacco, banking is not something that's inherently bad.

What the tobacco comparison does is continue to put a wider chasm between the two warring sides of the banking debate. On the one side, there are banks and banking supporters who like the idea of letting banks run free -- "The freer the markets, the better!" is their rallying cry. On the other side, we have critics who seem angry more than anything else, interested in punishing an industry they seem to see as a necessary evil, but evil nonetheless. And somewhere, lost in that massive chasm in between, are regulators, who seem to have this pussyfooting, "sorry, but we have to do this" approach to overhauling banking regulations.

The battle is so fierce that when former Citigroup chief Sandy Weill comes right out and says that banks need to be split up and "too big to fail" needs to be ended, proponents of regulation were too busy bathing in the hypocritical afterglow to simply take it for what it is -- a compelling vote in favor of significant, meaningful changes in the industry.

Less name-calling, more rule-makingIn the wake of the 2008/2009 meltdown, it was clear that something needed to change in the financial world. Since then, precious little has. With the exception of Citigroup, whose assets have shrunk by all of 12% since 2007, the too-big-to-fail banks of yore -- B of A, JPMorgan, Wells Fargo -- are now all too bigger to fail.

Meanwhile, the so-called Volcker Rule dealing with proprietary trading was due out this month, but has still not made an appearance. When it does, all signs point to it being of little consequence in terms of actually curtailing worrisome prop trading activities. Certainly JPMorgan has been continuing on as if nothing has changed.

Banking isn't tobacco. But it is readily apparent that a lot of seedy folks have gotten involved in the banking business. As such, fines and criminal charges for their actions should reflect that. But aside from punishing those who actually did wrong, the idea here isn't to hamstring the finance industry spitefully, but to put reasonable rules in place that allow an important sector of the economy to do what it needs to do, while making it difficult for those whose greed would push them to put the system at risk.

The anger is understandable, but if we're going to move forward we need to quit the slap-fighting and get to work.

In light of all of this, could Bank of America's stock be in trouble? In a new premium report, "Will Bank of America Break Your Portfolio?," Motley Fool banking expert Anand Chokkavelu breaks down the risks and opportunities that B of A investors need to be aware of as the bank wades through this challenging period.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.